Money Creation in the Modern Economy – Bank of England

This isn’t the most riveting of short films but in amongst it is an incredibly important statement that would blow most people’s minds (mine at least). This fact is: banks create money when a loan is made. I’ll repeat that. In todays fiat money system, commercial banks are the main source of new money. They don’t shift money from savings accounts to loans as a lot of people think, but rather own a digital printing press and use it each time someone takes out a loan. If you stop and think about this it will turn all your preconceptions about money and debt upside down. You might then wonder why banks seem to have more control over the economic system than governments do and why everyone is ok with this.